FBA vs FBM – Which is the best choice for my business?
Amazon Sellers have two options when it comes to fulfilling orders: Fulfillment by Merchant (FBM) and Fulfillment by Amazon (FBA). Both methods have advantages and disadvantages, and many sellers utilize both options when managing their Amazon presence. Which option is best for your business depends on factors such as order volume, profit margin, product size and weight, product cost, available manpower, and market strategy.
FBM explained
If you are already managing sales through your own eCommerce platform, fulfillment by merchant (FBM) will feel the most familiar. You as the merchant remain in control of your inventory. It is up to you to fulfill all orders through Amazon. FBM sellers can buy shipping on their own, but it is recommended to purchase shipping labels through the Amazon platform as it is generally easier and more cost-effective.
FBA explained
Fulfillment by Amazon is a different animal entirely. You as the merchant will ship inventory into an Amazon fulfillment center where each unit will be scanned and then redistributed throughout Amazon’s system of warehouses around the country. When an order is placed, Amazon will pick, pack and ship your item directly to the customer. This can save considerable effort on your part, but it comes with a cost; FBA fees are higher than FBM fees. FBA orders are automatically Prime eligible which is a huge boost; listings that are Prime eligible have higher conversion rates than listings that are not. FBA listings are also more likely to win the Buy Box, which leads to higher conversion rates.
So which option is best for my business?
As noted before, FBA fees are higher than FBM. In addition, Amazon charges storage fees for utilizing their warehouses which are based on the size and weight of the items. Beyond that, you will have to pay to ship your inventory into Amazon warehouses, adding yet another cost. So how do you know if FBA is right for you?
Do you have the manpower to fulfill orders in a timely fashion? Do you have the shipping scales, label printers, and boxing and packing material necessary to fulfill orders on a daily basis? If the answer is no, FBA may be your best bet. Amazon will work as your staff, fulfilling the orders and dealing with customer returns. In exchange, they will charge higher rates.
In general, sellers are more successful when they choose items for FBA that are small in size, lightweight, high margin, and high in turnover. FBA is not the place for your large, heavy and slow-selling inventory. The additional storage fees will make FBA cost prohibitive and you will be better shipping those items on your own. Higher FBA fees will make it hard to realize a profit on lower-margin items. FBA inventory must be labeled with Amazon barcodes, which time-consuming and potentially costly (Amazon can label these items, for a fee). These are all factors that should be considered when deciding to send your own inventory into Amazon warehouses.
Slower selling, lower margin, larger and heavier inventory should be fulfilled by merchant. Lower FBM fees will help you protect margins while avoiding FBA storage fees. FBM also carries the advantage of giving you control over your own inventory. This is a major factor to consider if you also sell on your own eCommerce platform. FBM sellers are free to add or remove inventory from Amazon as it is available. Say, for example, you receive a large order away from the Amazon platform. You can immediately make that inventory unavailable for Amazon and do with it as you wish. In contrast, FBA inventory will be unavailable to you unless you request that Amazon returns it, which is a time-consuming process.
However, FBM items are not Prime eligible unless you qualify for Seller Fulfilled Prime, which can be difficult. FBM listings are also less likely to win the Buy Box. As a result, your FBM listing may experience a lower buyer conversion rate than if it were listed FBA. You may have better margins selling on FBM, but experience lower volume sales because of the lack of Prime badge and Buy Box.
Bottom Line
The decision to use either FBA or FBM will depend on a number of factors unique to your business. The good news is that it is very easy to switch listings from FBA to FBM. If you find that you’re unable to keep up with order volume, or that your competitors are all Prime-eligible and winning the Buy Box, you may do best to give FBA a shot. If you find that storage fees are excessive and that turnover is low, it may be best to switch to FBM.